Case Law Details
SUMMARY OF CASE LAW
Benefit in lieu of salary payable to an employee opting for voluntary retirement is exempted from being charged to tax to the extent of Rs. 5 lakhs by reason of section 10(10C); even if the payment is stretched over a period of years, the same would not become chargeable to tax in any subsequent assessment year.
RELEVANT PARAGRAPH
Section 10 (10C) of the Act was inserted in order to make voluntary retirement attractive so as to reduce human complements for securing economic viability of certain companies. It was intended to make voluntary retirement more attractive and beneficial to the employees opting for voluntary retirement. Therefore, this has to be interpreted in a manner beneficial to the optee for voluntary retirement, if there is any ambiguity.
12. Section 15 (a) of the Act provides for chargeability of salary to tax as soon it becomes due, though not paid. As soon the salary becomes due, the incurring of the liability is complete. As soon the liability is incurred, it becomes a deemed payment in view of definition of ‘pay’ defined under Section 43(2) of the Act. In the present case, though the amount of monthly benefit payable under the voluntary retirement scheme consists of salary or benefit in lieu of salary, as defined in Section 17(1) or (3) read with Section 43(2) of the Act. Prior to amendment in the Act, 2003, any amount “received” by an employee on his voluntary retirement in accordance with any scheme of voluntary retirement, was not to be included in computing his total income for the previous year. Exemption is available to the extent of Rs.5,00,000/ -. Under the scheme liability to pay was incurred and the amount became payable at the time when the employee was released having opted for the voluntary retirement under the scheme. Therefore, this is an amount, which is receivable by the employee at the time of voluntary retirement according to the scheme and become chargeable to tax under clause (a) of Section 15 of the Act, even though not paid.
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